Tuesday, January 31, 2017

We cannot advance until we dump the Technocrat Class and decentralize the power that the Liberal Establishment happily concentrated into the hands of corporate cartels and the central state.

Those who don't yet understand our centrally-planned cartel-state system will benefit from reading How Democrats Killed Their Populist Soul (The Atlantic). I've presented related analyses in three recent essays:

What we're talking about here is the Triumph of the Technocrats. There are multiple levels to this triumph of the technocrat class:

1. The dumbing down of the Technocrat Class via a Higher Education system that optimizes technocrat specialization at the expense of real-world business experience and broad-based knowledge.

As a result, the technocrat class has a very high opinion of its intelligence and judgment because it has no idea how little it actually knows or understands. It believes Higher Education's hype that specialization has given it a superior understanding that entitles it to control and power.

This overweening belief in its own superiority sets the stage for hubris and catastrophically ungrounded decisions.

Need we look any farther than the invasion of Iraq or the Establishment's response to the insolvency of self-liquidating money-center banks in 2008?

The roots of the Technocrat Class's hubris and self-congratulatory bias goes all the way back to the 1960s-era "whiz kids" described by David Halberstam's classic account The Best and the Brightest.

The rise of computers (albeit primitive by today's standards) enabled the first Technocrat romance with "big data", i.e. a reliance on data analysis to make decisions about a real world that cannot be reduced to quantification without a loss of decision quality and humility.

This is how we ended up with a nation in which Technocrats with no real-world military combat experience are running America's wars and Technocrats who have never started a single company or paid a single employee with their own money are running America's economy.

2. As outlined in How Democrats Killed Their Populist Soul, the Liberal Establishment melded Corporate-banking cartels and the central state into one centrally planned, technocrat-controlled cartel-state system. This has created millions of well-paying, protected Technocrat jobs in an expansive Deep State that stretches from universities to the corporate media to the federal agencies to Silicon Valley cartels and monopolies.

Here is my simplified chart of the Technocrat Deep State:

Here's a chart that reflects the massive expansion of Technocrats in the healthcare system: charts of Higher Education track this same Triumph of Technocrats: the number of administrators has exploded while the number of tenured professors has essentially flatlined.

The top 5% is the Technocrat Class. The phenomenal rise in the income and spending of the Technocrat Class is illustrated in this chart:

No wonder the Liberal Establishment is freaking out: they've failed. Despite their multiple degrees, they are ignorant. Despite their confidence in "we're the best and brightest," The economy inhabited by the bottom 95% has stagnated, and all the wars of choice run by the technocrats have become unwinnable quagmires (despite Rummy's claim that "we don't do quagmires").

Even worse, "lesser beings" (i.e. the rest of us) are challenging their central planning power, which they view as their birthright / entitlement. Here's the Liberal Establishment's view in a nutshell: How dare they challenge our power? The reality that "lesser educated" people actually have a better grasp of the real world than Technocrats is simply unacceptable to the Liberal Establishment Technocrats.

We cannot advance until we dump the Technocrat Class and decentralize the power that the Liberal Establishment happily concentrated into the hands of corporate cartels and the central state.

Solutions gut the rackets by breaking down the status quo's regulatory walls protecting the privileged elites who are stripmining the bottom 95%.

Much of what passes for politics these days is symbolic. Anyone who studies the issue of illegal immigration concludes that the solution lies not in building $10 billion walls but in changing the incentive structure of citizenship, legal and illegal immigration. As long as successfully crossing the border enables access to free healthcare, education and sanctuary and the potential for cash work--the equivalent of winning the lottery for those with none of these benefits--walls will be tunneled under, overflown or bypassed by sea.

The Trump Administration's proposed policies on tariffs, walls to stop illegal immigration, etc. are defended as symbolic gestures--in other words, their value is in communicating "things have changed", not actually solving the problems facing the nation.

On the other side of the spectrum, protests in defense of a corrupt, failed status quo are also symbolic. No thinking person can claim that the status-quo policies on illegal immigration are fair, just or functional; how is letting illegal immigrants "jump the queue" ahead of the hundreds of thousands of legal immigrants who have labored patiently for years, paying all the outrageous costs of navigating the Kafkaesque complexities of legal immigration fair or just?

Protesting in defense of a racket-based status quo fixes nothing and solves nothing. Protests are also purely symbolic: the indignant express their indignation, gather to support a corrupt, venal system of rackets and then go home to stroke their egos on social media: I struck a blow today for... a corrupt system of rackets that enrich self-serving vested interests and privileged elites.

Dear Trump insiders and protesters: did either of you propose a real solution to the college debt-serfdom racket? No, you didn't. Your symbolic gesture was nothing but a fix-nothing farce. If you think a trillion dollars of debt to pay for mostly worthless credentials is sustainable, fair, just or functional, you're willfully blind to the ugly reality: higher education is just another cartel-state racket:

As Jim Kunstler as often observed, the status quo in the U.S. is nothing but an interconnected network of rackets run by protected technocrats to benefit a plutocracy of wealthy insiders and their political-class lackeys. These rackets--higher education, healthcare, defense weaponry, the corporate media, and on and on--are nothing but institutionalized extortion, embezzlement and fraud, systems that enrich the top 5% at the expense of the bottom 95%:

Dear protesters and Trump insiders: do either of you understand that the whole tragi-comedy of rackets passing for politics is a house of cards that depends on ever-expanding debt? Once the debt bubble pops, the rackets implode, and the real value of symbolic politics--zero-- will be revealed.

The farce of symbolic politics fixes nothing. Solutions are not symbolic; solutions gut the rackets by breaking down the regulatory walls protecting the privileged elites who are stripmining the bottom 95%, "snowflakes" and "deplorables" alike.

That's how the fraud and the rackets are enforced: get each camp to view the other as the enemy in the great coliseum of symbolic, do-nothing politics. Mix and stir, then stand back and continue skimming the nation's wealth in whatever racket is buttering your bread while the two camps distract themselves with symbolic battles.

Sunday, January 29, 2017

You want to fix the economic system, reduce political bribery and reduce rising income inequality? Shut off the cheap unlimited credit spigot to banks, financiers and corporations.

Cheap credit--newly issued money that can be borrowed at low rates of interest--is presented as the savior of our economic system, but in reality, it's why our system is broken. The conventional economic pitch goes like this: cheap credit enables consumers to buy more goods and services (and since the system needs growth or it implodes, that's good).

Cheap credit also enables companies to invest in new productive assets (capital).

Last but not least, low rates of interest enables the government at all levels to borrow money at relatively low cost.

That all sounds good in theory, but let's see how cheap credit works in the real world.

The first thing we observe is those closest to the central bank credit spigot get the lowest rates and nearly unlimited lines of credit. J.Q. Citizen may be thrilled to get a 4% annual-rate mortgage, but the mega-millionaire closer to the credit spigot can borrow 10 times as much as J.Q. can, and at half the rate of interest.

Mega-corporations and financiers can borrow billions at rates as low as 1%, which given an official inflation rate of 2%, is actually a negative rate of real interest.

Money-center banks own the credit spigot, so they can create money out of thin air at .5%.

In other words, cash isn't king in this perverse system: cheap credit is king. Those with access to cheap unlimited credit can scoop up all the productive assets, greatly increasing their wealth--and they can buy the political class, too, with campaign contributions and donations to false-front foundations.

Here's an example of the perverse incentives and unintended consequences this unlimited credit unleashes in the real economy. Let's say I'm a financier who is close to the credit spigot. I borrow $100 million at 1.25% (or sell $100 million in bonds yielding 1.25%) to buy a company that yields 4.25% in after-tax profits.

Buying the $100 million company costs me nothing but the monthly interest payments. Since the company yields 4.25%, I am already netting a 3% return.

But why settle for a meager annual income of $3 million for doing absolutely nothing? If I sell 80% of the company to pension funds and other institutions for $100 million, I can pay off the $100 million I borrowed to buy the company and keep the 20% I now own free and clear. This transaction nets me $20 million profit for doing nothing but leveraging my access to cheap credit to buy real assets.

If I hold my $20 million stake, it earns a hefty $850,000 annually--once again, for doing nothing but accessing cheap unlimited credit.

In other words--anyone who can borrow $100 million at low rates of interest is instantly wealthy because they can outbid everyone who has to pay higher rates to buy productive real assets.

This is why our system is broken: cheap credit has enabled the rich to become immensely richer while producing nothing of value--no additional goods or services have been produced by these financier skims. My example is just one example of many such skims: corporations borrowing billions on the bond market to buy back shares is another.

Compare J.Q. Public's struggle to buy a home with the ease of financiers buying hundreds of homes. After years of scrimping and saving, J. and Suzy Q. have saved up the 20% needed to buy a $200,000 home with 20% down ($40,000). Careful analysis of local rents and other methods of valuing housing suggest the house would be a bargain at $180,000 and a bit rich at $220,000--above that, it isn't worth buying as the costs of the mortgage are too high compared to the rent that the house would fetch.

The financier with $100 million in cheap credit has no such difficulties. He doesn't need any cash down--he borrows $100 million from a money center bank or from the bond market. Since his borrowing costs are half of J. Suzy Q's mortgage expenses, he can bid $250,000 for the home, blowing J. and Suzy completely out of the bidding.

And since the financier knows the central banks are busy spewing trillions in new cheap credit to those closest to the credit spigot, he knows he can flip the house to another institutional owner for a hefty profit. Cheap unlimited credit inflates asset bubbles, which benefit those who bought the assets cheap with cheap borrowed credit.

So the house is sold for $350,000 a few years later to an institutional buyer. J. and Suzy Q. are now completely priced out of the market; they now need $70,000 down, and they remain at a disadvantage because their mortgage has a much higher rate than the debt of the financiers who are competing with them.

Cheap unlimited credit for financiers and corporations has incentivized parasitic, zero-productive churning of credit and capital and inflated bubbles that enriched the wealthy. Sure, the top 5% who own stocks, shares of enterprises and homes in left and right-coast hot-spots have done very, very well for themselves--but nowhere near as well as those at the top who have leveraged cheap unlimited credit into billions in risk-free profits.

You want to fix the economic system, reduce political bribery and reduce rising income inequality? Shut off the cheap unlimited credit spigot to banks, financiers and corporations. If everyone with good credit had to pay 6% to borrow money, regardless of their position in the wealth-power pyramid, perverse incentives for parasitic skimming would take a major hit.

Thursday, January 26, 2017

How about moving the power to create money from the apex of the pyramid down to its lowest level?

Let's spend a moment deconstructing the word "capitalism." Note it contains the word Capital. So far so good. Obviously the key concept here is capital.

So what is "capital"? It turns out there are multiple kinds of capital. The most familiar kinds are tangible: cash, orchards, factories, water rights, tools, and so on.

Then there's credit. If you have unlimited credit at very low rates of interest, you can buy all the tangible capital you want, as long as it produces enough income to cover the costs of production and the interest you owe on the borrowed money you used to buy the factories, orchards, etc.

Some types of capital are intangible but essential to the productive use of tangible capital. You can have the credit, land and pile of lumber needed to build a house, but if you don't have the knowledge, experience and skills needed to turn the pile of wood into a productive form of tangible capital, you have nothing but an unproductive pile of lumber.

We call this form of capital human capital (also called knowledge-based capital, intellectual capital, etc.).

If you hire a person with some of these skills, that's a good start, but you need specialists who can complete all the trades needed to build a fully functional house that can be rented or sold, i.e. earn a return on the capital invested.

If the person you hire knows a lot of other trustworthy tradespeople, that's what we call social capital.

If we dig deeper, we find even more forms of capital. The idea of credit is actually pretty bizarre; not all cultures have such a form of capital. We call concepts that enable all sorts of expansion of other types of capital symbolic capital.

If we drop our pile of lumber and builder on a plot of land in the middle of nowhere, with no roads, power lines, etc., that house is going to be a lot harder to build than one with access to transport, electrical power, etc. We call this infrastructure capital. (It's pretty expensive to construct this sort of networked infrastructure capital on your own.)

At the deepest level, we find cultural capital. This is the network of trust and productive values that enable all the other kinds of capital to blossom and work together in a mutually beneficial system.

A tool or factory or plot of land does not come with cultural capital. Tools without any cultural capital are left to rust.

So the first thing we notice about cultural capital is that it resides in people, not credit or tools or even knowledge. Yes, this is a shocking development: people are required for capital to become productive.

We call human effort labor. In the techno-credit fantasy of our current version of capitalism, the dream is that robots make everything and human effort is devoted solely to consuming what the robots produce. Human = consumer, not producer.

The problem is that nobody will invest in a robot unless that robot will produce a profit above and beyond the cost of production and credit/interest. So all these wonderful robots will only perform work that is profitable.

The problem with that is most of human life and activity is unprofitable. How about beautifying your neighborhood? Have you noticed that impoverished neighborhoods tend to be ugly and run-down, and wealthy neighborhoods tend to be attractive and well-maintained? Where's the profit in creating neighborhood beauty?

Is Google making billions of dollars from beautifying neighborhoods? How about McDonalds, or Amazon, or Apple or Netflix? If it was really profitable, wouldn't these global corporations be all over it?

It turns out profits only flow from very specific kinds of things and services. The rest of human life has to be done by people who aren't doing the work to maximize profit, because there is no profit in the work they're performing.

Let's switch gears and look at credit. As noted above, if you give me $1 billion at .01% annual interest, I am instantly wealthy because I can buy assets yielding 3% and keep the 2.99% I earn for myself.

In our credit-cartel-state form of capitalism, money is borrowed into existence at the top of the wealth-power pyramid, in central and private banks. Some modest amount of this new money trickles down the pyramid, but as you can see, not very much trickles down to all the people doing all the work that isn't profitable, or to all the people without access to the nearly-free-money that's available to those at the very top of the pyramid.

So here's a new idea: why not create new money at the bottom of the pyramid when people perform useful work in their communities? How about paying people for being producers, rather than paying them to be consumers?

How about paying people to do work that isn't profitable enough for global corporations to churn out robots to perform the work, but that is useful to the community?

How about moving the power to create money from the apex of the pyramid down to its lowest level? Impossible, you say? Not at all. We now have a new form of symbolic capital called cryptocurrencies--"money" that can easily be created in the accounts of people doing useful work, as opposed to being created in the accounts of the already-obscenely wealthy, as we do now.

Rather than trickle down, money would trickle up the pyramid, if the wealthy actually produced goods and services of value.

So what would a labor-centered economy look like?

1. New money would be created at the bottom of the pyramid, in the accounts of people doing useful work in their communities. (The usual global corporations would continue making billions of dollars in profits from doing whatever highly profitable work was available.)

2. Being productive in terms of creating and sustaining cultural and infrastructure capital would be compensated; consumption of corporate goods and services would take care of itself without subsidies like guaranteed basic income.

3. Labor would be paid for being productive, and capital would serve labor.

Yes, yes, I know all this is "impossible"--but actually, it isn't at all impossible. We simply choose to maintain the doomed, parasitic, exploitive system we now have that gives capital the power (to create money) to dominate the world.

Wednesday, January 25, 2017

Here is an opportunity for "Black Lives Matter" and the Trump administration to find common cause.

President Trump has a golden opportunity to strike a major blow for civil rights with a single executive order: end the failed "War on Drugs" and shut down America's drug-war gulag. None of the previous three presidents expended any political capital on curbing the immensely destructive "War on Drugs" or freeing the (in many states, preponderantly African-American and Hispanic-American) prisoners in America's drug-war gulag.

"Fake-liberal" Bill Clinton did nothing, "fake-conservative" George W. Bush did nothing, and "fake-liberal" Barack Obama did nothing to end the "War on Drugs" or curb the gulag it created. Their parties and supporters were delighted to appear "tough on crime" while destroying the lives of hundreds of thousands of African-American, Hispanic-American and other Americans with long sentences in the gulag for selling nickel bags of "illegal" drugs, while America's parasitic Big Pharma industry reaped billions of dollars in profits selling "legal" opiates while handing our self-serving politicos millions in campaign contributions.

The imprisonment of hundreds of thousands of young Americans--preponderantly Americans of color in state after state-- in America's drug-war gulag is the greatest violation of civil rights since the 1960s-- yet fake-liberals and fake-conservatives alike have done nothing but turn their self-serving gaze away from this needless, costly, stupid waste of lives and treasure.

Step one: fully legalize marijuana on the federal level. Isn't it time for the federal government to finally move beyond the "reefer madness" propaganda of the 1920s? President Trump could do so much good by wiping out the insanely counterproductive federal statutes against marijuana.

Next, President Trump could decriminalize all drugs and commute the sentences of everyone in prison for small-time dealing or drug possession.Empty the drug-war gulag in an orderly fashion, providing counseling and some initial job training to those exiting the drug-war gulag. The cost of emptying the gulag will be much more affordable than operating the gulag.

Erase all drug-related convictions from prisoners' records, restoring their rightful citizenship. Strike the drug-war felonies from everyone convicted of small-time dealing or possession.

Here is an opportunity for "Black Lives Matter" and the Trump administration to find common cause. The War on Drugs gulag has stripped the civil rights and civil liberties of hundreds of thousands of Americans, including many young men of color. The Trump administration has a golden opportunity to do the right thing and eliminate the unrighteous, wasteful and morally wrong War on Drugs. It's Time to Abolish the DEA and America's "War on Drugs" Gulag (August 18, 2016)

One of the first steps to making America great again is to close down the War on Drugs gulag. Let's be dead-last in imprisoning hundreds of thousands of young men and women, ruining their lives and stripping them of their civil rights. It's time to drop from a shameful Number 1 to the bottom of the list in counter-productive drug-war gulags.

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